Column: When the Wind Blows, What Then?
Jan 14, 2013
The following article was published in the Lakeland Ledger on January 14, 2013:
When the wind blows, then what?
By John Wood
There’s one unpleasant and unavoidable fact underlying the seemingly endless debate about how to fix state-run Citizens Property Insurance Corp.: many policyholders, whether on the coast or inland, are paying dramatically insufficient insurance rates that don’t cover the true risk on their homes.
To borrow a phrase now common on the national political landscape, this is Florida’s fiscal cliff. Polling shows that the vast majority of Floridians — whether they’re Citizens policyholders or not — have no idea of their financial exposure in the event Citizens can’t pay its claims. If a major hurricane hits the state, we would be subjected to serious hurricane taxes on our personal and business insurance policies that would heap grave economic damage on Florida.
There’s common agreement that the answer is to shrink Citizens, but some want to go much too slowly.
Citizens was designed to be the insurer of last resort, but it has become the insurer of first resort. The problem has become so bad that more than 30,000 policies a month flood into Citizens. One in four Florida property insurance policies — almost 1.5 million — is in Citizens.
Many Citizens policyholders are passing up private insurance coverage and opting for state-sponsored insurance for a simple reason — it’s cheaper.
Citizens is moving thousands of policies back to the private market, but what good is that when the inflow of new policies matches or exceeds the outflow? We are aimlessly spinning our wheels.
Unfortunately, our public policy is to allow consumers to obtain coverage in Citizens at inadequate rates and then to cap their rate increases at 10 percent annually to avoid financial shock. Of course, no one ever wants to pay higher insurance rates, and Floridians are still recovering from a deep recession. But we’re digging ourselves an ever-deeper financial hole that will be tough to climb out of when the wind blows again.
Last Spring, when Citizens’ board considered lifting the 10 percent cap for new business, Florida CFO Jeff Atwater said it would be beyond the Legislature’s intent to do so. If this is so, then state lawmakers should fix this problem in the coming 2013 session.
New policies pouring into Citizens at a rate of 8,000 per week should be priced at the actuarially correct rate so that Citizens’ reserves needed to pay claims down the road will be sufficient. Otherwise, all Florida policyholders will be taxed to make up any shortfall in Citizens’ reserves, and that is wrong.
Why should Floridians who pay actuarially sound, state-approved rates for private-market insurance have to subsidize others who seek to get discounted insurance from Citizens? This undercuts the private market and prevents desperately needed private insurance capital from coming to Florida.
Additionally, affluent homeowners already in Citizens should pay actuarially sound rates immediately. Why should someone with a house valued at more than $500,000 (excluding land costs) be able to buy “discounted” insurance from the state? Working families should not have to face the possibility of hurricane taxes on their homes, cars and small businesses to bail out well-heeled Citizens policyholders after a hurricane.
The Citizens Board of Governors and the Legislature need to address these issues head on. The sooner we get all Citizens customers paying correct rates the sooner we will be able to pull back from Florida’s fiscal cliff.
View the original article here: http://www.theledger.com/article/20130114/COLUMNISTS03/130119673?p=all&tc=pgall